MANAGEMENT STABILITY AGREEMENT

     AGREEMENT dated as of November 1, 1996 ("Agreement") between Valero
Energy Corporation, a Delaware corporation (the "Corporation"), and Gregory C.
King (the "Executive"),

                           WITNESSETH:

     WHEREAS, for the reasons more fully set forth in the minutes of the
Executive Committee (the "Committee") of the Board of Directors of the
Corporation, the Committee has approved the execution, delivery and
performance by the Corporation of management retention agreements,
substantially in the form of this Agreement, between the Corporation and
certain officers and other key executives of the Corporation and its
subsidiaries, including the Executive;

     WHEREAS, should the Corporation become involved in any Change of Control
or Divestiture (each as hereinafter defined) situation, in addition to
Executive's regular duties, Executive may be called upon to assist in the
assessment of any third-party or internal proposals, advise management and the
Board as to whether such proposals would be in the best interests of the
Corporation and its shareholders, participate in successfully completing such
transactions and to take such other actions as the Board might determine to be
appropriate;

     NOW, THEREFORE, to assure that the Corporation will have the continued
dedication of the Executive, and the availability of Executive's advice and
counsel as to the best interests of the Corporation and its stockholders,
notwithstanding the possibility, threat, or occurrence of a Change of Control
or Divestiture, and to induce the Executive to remain in the employ of the
Corporation and/or its designated subsidiaries, and for other good and
valuable consideration, Corporation and Executive agree as follows:

     1.   Services During Certain Events.

          A.   In the event any Person (as defined in Paragraph 2.E) (i)
begins a tender or exchange offer for equity securities of the Company, (ii)
or publicly announces an intention to take or consider taking any actions
which, if consummated, would constitute a Change of Control, (iii) circulates
a stockholder consent or solicits a proxy for the election of directors, (iv)
enters into an agreement with the Corporation, the consummation of which would
result in a Change of Control, (v) becomes an "Acquiring Person" under the
Rights Agreement, dated October 25, 1995, between the Corporation and Harris
Trust and Savings Bank, as Rights Agent, or (vi) publicly takes other steps
which, if consummated, would constitute a Change of Control, Executive agrees
that he or she will not voluntarily leave the employ of the Corporation or its
subsidiaries, and will render the services contemplated in the recitals to
this Agreement and in any employment agreement between the Corporation and
Executive, until the earlier of (u) such date as such Person has abandoned or
terminated efforts to effect a Change of Control, (v) sixty days following the
date on which  a Change of Control has occurred or (w) thirty days following
written notice to the Corporation of such termination of employment.  In the
event the Corporation determines to undertake any transaction or transactions
which, if consummated, would constitute a Divestiture, Executive agrees that
he or she will not voluntarily leave the employ of the Corporation or its
subsidiaries and will continue to render the services recited in the preambles
to this Agreement and in any employment agreement between the Corporation and
the Executive until the earlier of (x) such date as the Corporation has either
abandoned or terminated its efforts to effect such Divestiture, or (y) sixty
days following the date on which such Divestiture has occurred, or (z) thirty
days following written notice to the Corporation of such termination of
employment.

          B.   The provisions of Paragraph 1.A notwithstanding, Executive may
terminate employment for any reason prior to the occurrence of an event
specified in Paragraph 1.A(i)-(vi), or a determination by the Corporation to
undertake a Divestiture, as the case may be, and, following the occurrence of
any such event or a determination by the Corporation to undertake a
Divestiture, as the case may be, may terminate employment through retirement,
total and permanent disability, or for Good Reason.  For purposes of this
Agreement, "Good Reason" means (i) the occurrence of any event or circumstance
which, if occurring following a Change in Control or Divestiture, would render
Executive's termination of employment "involuntary" (as defined in Paragraph
2.H), or (ii) a breach (other than an insubstantial failure which is remedied
by the Corporation promptly after receipt of notice thereof from the
Executive) by the Corporation of any provision of this Agreement.

     2.   Termination After Change of Control.  In the event that, within two
years following the occurrence of a Change of Control of the Corporation or a
Divestiture, Executive's employment is terminated so that Executive is no
longer employed with any of the Corporation or its then remaining
subsidiaries, or a Divested Entity or its subsidiaries, then, except as is
otherwise provided in Paragraph 2.D below, Executive shall be entitled to
receive the following payment and other benefits: 

          A.   Lump Sum Cash Payment.   On or before Executive's Termination
Date, the Corporation will pay to Executive (in addition to any base salary,
bonuses, incentive compensation, expenses, vacation, benefits, benefit plan
distributions and other amounts which would otherwise normally be payable to
Executive, to the extent not theretofore paid), as compensation for services
rendered to the Corporation, a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to two (2) times the
highest annual rate of compensation in effect at any time during the 36-month
period ending on the Termination Date.  As used herein, "annual rate of
compensation" shall mean the aggregate regular base salary paid or payable to
Executive by the Corporation with respect to any period of 12 consecutive
months.  In the event there are fewer than 24 months remaining from the
Termination Date to Executive's normal retirement date at age 65, the amount
otherwise payable hereunder shall be reduced as follows:  the amount otherwise
calculated under this Paragraph 2.A will be multiplied by a fraction, the
numerator of which is the number of days remaining to Executive's normal
retirement date and the denominator of which is 720, and the resulting product
shall be the amount payable to Executive under this Paragraph 2.A.

          B.   Other Benefits.

               (i)  Insurance or Other Special Benefits.  For two years (the
"Applicable Period") after the Termination Date, or such longer period as may
be provided by the terms of the appropriate plan, program, practice or policy,
the Corporation shall continue benefits to Executive and/or Executive's family
at least equal to those which would have been provided to them under the
welfare benefit plans, practices, policies and programs provided by the
Corporation (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) immediately prior to such termination, to the
extent applicable generally to other peer executives of the Corporation and
its affiliated companies, if the Executive's employment had not been
terminated; provided, however, that in no event shall the continued benefits
provided hereunder be less favorable, in the aggregate, than those provided
under the most favorable of such plans, practices, policies and programs in
effect for Executive at any time during the 120-day period immediately
preceding the Termination Date or, if more favorable to Executive, those
provided generally at any time after the Termination Date to other peer
executives of the Corporation, its affiliated companies or their successors. 
To the extent that, during the Applicable Period, or any portion thereof, the
benefits required to be provided under this Paragraph 2.B are also required to
be provided by the Corporation under applicable provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Corporation may
discharge such portion of its obligation hereunder by providing such
COBRA-mandated benefits, but at the Corporation's sole cost and expense.  If
Executive is reemployed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan, the medical
and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility.

               (ii) Thrift and Other Plans.  The Executive's participation in
the Corporation's Thrift Plan, Employee Stock Ownership Plans, retirement plan
for employees generally ("Pension Plan") or other applicable plans of  the
Corporation (or, if applicable, such similar plans as the Divested Entity may
establish) shall not continue after the Termination Date.  Any terminating
distributions and/or vested rights under such plans shall be governed by the
terms of the respective plans.

          C.   The foregoing provisions of this Paragraph 2 notwithstanding,
Executive shall not be entitled to receive, and the Corporation and, if
applicable, the Divested Entity shall not be obligated to make, the payments
and other benefits specified in Paragraphs 2.A and 2.B  above if Executive's
termination employment occurs under any one of more of the following
circumstances:

               (i)  Executive's termination of employment is "voluntary" (as
hereinafter defined);

               (ii) Executive is terminated by his employer company for
"cause" (as hereinafter defined);

               (iii)     Executive's termination is a consequence of death or
total and permanent disability; or

               (iv) Executive retires under the Corporation's Pension Plan
(or, if Executive is then an employee of a Divested Entity or its
subsidiaries, under such entity's similar tax-qualified pension plan).

          D.   Definition of Termination Date.  For the purpose of this
Agreement, "Termination Date" shall mean: (i) in the case of a Change of
Control, the Executive's last day of employment with the Corporation or any of
its subsidiaries, and (ii) in the case of a Divestiture, the Executive's last
day of employment with any of the Corporation or any of its subsidiaries, or
with a Divested Entity or any of its subsidiaries, as the case may be.

          E.   Definition of Change of Control.  For the purpose of this
Agreement, a "Change of Control" shall mean:

               (i)  The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (a) the then outstanding shares of common stock of the
Corporation (the "Outstanding Corporation Common Stock") or (b) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); provided, however, that for purposes of this
subparagraph (i), the following acquisitions shall not constitute a Change of
Control:  (a) any acquisition directly from the Corporation, (b) any
acquisition by the Corporation, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Corporation or any
corporation or other entity controlled by the Corporation or (d) any
acquisition by any corporation or other entity pursuant to a transaction which
complies with clauses (a), (b) and (c) of subparagraph (iii) of this Paragraph
2.E; or

               (ii) Individuals who, as of the date hereof, constitute the
Board of Directors of the Corporation (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Corporation's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or 

               (iii)     Consummation of a reorganization, merger or
consolidation, or sale, transfer, or other disposition of all or substantially
all of the assets of the Corporation (a "Business Combination"), in each case,
unless, following such Business Combination, (a) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation or other entity surviving or resulting
from such Business Combination (including, without limitation, a corporation
or other entity which as a result of such transaction owns the Corporation or
all or substantially all of the Corporation's assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (b) no Person (excluding any corporation or
other entity surviving or resulting from such Business Combination or any
employee benefit plan (or related trust) of the Corporation or such
corporation or other entity surviving or resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
or other entity surviving or resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation or other entity except to the extent that such ownership existed
prior to the Business Combination and (c) at least a majority of the members
of the board of directors or other governing body of the corporation or other
entity surviving or resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement or
of the action of the Board, providing for such Business Combination; or

               (iv) Approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation; or

               (v)  any other event determined by the Board of Directors or
the Committee to constitute a "Change of Control" hereunder.

          F.   Definitions of Divestiture and Divested Entity.  For purposes
of this Agreement, the term "Divestiture" shall mean and include any
transaction or series of transactions (including, without limitation, any
spin-off, split-off, merger or other business combination, or sale, lease,
capital contribution, contractual dedication or other transfer or disposition
of securities or assets) pursuant to which all or a majority of either (i) the
assets ("Natural Gas Assets") constituting the natural gas and natural gas
liquids business as now conducted by Valero Natural Gas Company and its
subsidiary corporations and partnerships, or (ii) the assets ("Refining
Assets") constituting the refining and marketing business as now conducted by
Valero Refining and Marketing Company and its subsidiary corporations, are
directly or indirectly owned or controlled by one or more corporations,
partnerships, limited liability companies, joint ventures or other Persons
which are not wholly owned subsidiaries of the Corporation (referred to herein
as a "Divested Entity").  As used herein, the term "control" (and with
correlative meaning, the terms "controlled," "controlling" and "controlled
by") shall mean the possession, directly or indirectly, of the power to
direct, cause the direction of or influence the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.

          G.   Definition of "cause".  As used herein, "cause" shall mean (i)
Executive's conviction of a crime under federal or state law (excluding a
misdemeanor offense not involving moral turpitude), or (ii) Executive's gross
and deliberate disregard of Executive's duties and responsibilities, as
reasonably determined by the Board of Directors of the Corporation (or, if
Executive becomes an employee of a Divested Entity, the Board of Directors of
such Divested Entity) after written notice of such failure and the failure or
refusal by Executive to correct such failure within 10 days from the date
notice is given, or (iii) the continued material impairment of Executive's
ability to fulfill his responsibilities as a result of alcoholism or drug
dependency after written notice of such material impairment and the failure to
correct such impairment with 45 days from the date notice is given or such
longer period as may be required under applicable law.

          H.   Definitions of "voluntary"/involuntary".  In the event that
Executive ceases to be an employee of the Corporation, a Divested Entity or
their respective subsidiaries after (i) Executive's base salary is reduced to
an amount below the base salary pertaining immediately prior to the Change of
Control or Divestiture, as the case may be, or (iii) Executive's benefits (to
include, without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident insurance
plans and programs, vacation benefits, retirement benefits, participation in
stock option, restricted stock and other employee stock plans, and
participation in executive incentive bonus programs) are reduced so as not to
be at least substantially comparable with the benefits to which Executive was
entitled prior to the Change of Control or Divestiture, as the case may be, or
(iii) Executive is required to relocate to a new principal place of employment
under circumstances in which Executive would not be reimbursed for all
expenses reasonably incurred in such relocation (including taxes payable on
such reimbursement and on such gross-up payment; costs of packing, moving and
unpacking household goods; reasonable expenses of travel, meals and lodging in
moving to the new location; reasonable costs of temporary living expenses at
the new location; and assistance in selling Executive's home commensurate with
the assistance customarily provided by the Corporation to transferred
executives prior to the Change of Control or Divestiture, including
acquisition of such home by the Corporation at an appraised fair market
value), then such termination of employment shall be deemed for all purposes
of this Agreement to be "involuntary" and Executive shall be entitled to the
benefits specified in Paragraphs 2.A and 2.B.  If the Executive's termination
of employment is not "involuntary," as defined above, and does not arise from
one or more of the circumstances itemized in Paragraph 2.C(ii) through (iv),
then such termination of employment is deemed to be "voluntary" for purposes
of this Agreement.

     3.   Acceleration of Options and Rights in Certain Events.  Stock options
("options") and stock appreciation or similar rights ("rights"), if any,
granted to Executive by the Corporation under the Corporation's Stock Option
Plans No. 3, 4 and 5, and Executive Stock Incentive Plan (collectively the
"Plans") (or any other stock option or stock appreciation rights plan adopted
by the Corporation) and not previously exercised, canceled or otherwise
terminated will be exercisable in full for a period of 90 days, or if longer,
such period as is specified in such plan, such 90 day period to commence on
the earlier of (a) the date of the Change of Control of the Corporation or the
Divestiture or (b) on the date of approval by the Corporation's shareholders
of an agreement providing for a merger or other transaction in which the
Corporation will not remain an independent publicly owned corporation or a
consolidation, a sale, transfer or other disposition of all or substantially
all the assets of the Corporation or another transaction constituting a Change
of Control or Divestiture; provided however, that no such option or right
shall be exercisable after the expiration date of such option or right.

     4.   Removal of Restrictions on Stock Grants.  Stock previously granted
to Executive by the Corporation as restricted stock or performance shares
under the Corporation's Restricted Stock Bonus and Incentive Stock Plan or
Executive Stock Incentive Plan (or any other similar stock plan adopted by the
Corporation) will have all restrictions removed on the earlier of (a) the date
of the Change of Control of the Corporation or the Divestiture, or (b) on the
date of approval by the Corporation's shareholders of an agreement providing
for a merger or other transaction in which the Corporation will not remain an
independent publicly owned corporation or a consolidation, a sale, transfer or
other disposition of all or substantially all the assets of the Corporation,
or another transaction constituting a Change of Control or a Divestiture;
provided, that, in the case of stock previously granted to Executive as
performance shares under the Corporation's Executive Stock Incentive Plan (or
any other similar stock plan adopted by the Corporation), the performance
period shall be deemed to have terminated on the earlier of the dates
specified in clauses (a) or (b) above, and the number of shares to which the
Executive is then entitled shall be determined in accordance with such plan.

     5.   Excess Amounts.

          A.   Excise Taxes.  Anything in this Agreement to the contrary
notwithstanding, in the event any payment or distribution by the Corporation
to or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (such excise tax,
including any interest or penalties incurred with respect thereto, being
referred to herein as the "Excise Tax"), then the lump-sum amount payable to
the Executive pursuant to Paragraph 2.A hereof shall be reduced to such amount
(the "Reduced Payment") but not below zero, such that the receipt of the
Executive of the Reduced Payment and all other payments and distributions
pursuant to this Agreement would not give rise to any Excise Tax.

          B.   No Duplication.  Subject to the terms and conditions hereof, if
Executive has received the lump-sum payment and other benefits specified in
Paragraph 2 for one Change of Control or Divestiture event, Executive shall
not be entitled to receive a lump-sum payment or other such benefits under
this Agreement from the Corporation or a Divested Entity for any subsequent
Change of Control or Divestiture event.  In addition, if Executive receives a
lump-sum payment under this Agreement, then except as may be expressly
provided in an individual agreement between Executive and the Corporation,
Executive shall not be entitled to participate in and receive a severance
benefit under any other severance plan maintained by the Corporation for
executive officers or employees generally.  The foregoing limitations shall
not be construed to prevent Executive from receiving a payment from the
Corporation or a Divested Entity under any separate agreement, contract or
arrangement.

          C.   Overpayments and Underpayments.  All determinations required to
be made under Paragraph 6.A shall be made by the Corporation which shall
provide detailed supporting calculations to the Executive no later than the
Termination Date.  As a result of uncertainty in the application of Section
280G of the Code at the time of the initial determination hereunder, it is
possible that payments will have been made by the Corporation which should not
have been made ("Overpayment") or that additional payments, which will not
have been made by the Corporation could have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder.  In
the event that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to the Executive which the Executive shall
repay to the Corporation together with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no
amount shall be payable by the Executive to the Corporation (or if paid by the
Executive to the Corporation shall be returned to the Executive) if and to the
extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code.  In the event that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Corporation to
or for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.

     6.   General.

          A.   Indemnification.  If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the fullest
extent permitted by applicable law, hereby agrees to indemnify Executive for
reasonable attorneys' fees and disbursements incurred by Executive in such
litigation (including any appellate proceedings, and regardless of whether or
not such litigation is ultimately resolved in favor of Executive), and hereby
agrees to pay pre-judgement interest on any money judgement obtained by
Executive, calculated at the "prime rate" of interest announced by Morgan
Guaranty Trust Company of New York, New York as being in effect from time to
time, from the date that payment(s) to Executive should have been made in
accordance with the provisions of this Agreement.

          B.   Payment Obligations Absolute.  The Corporation's obligation to
pay Executive the compensation and other amounts specified herein and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the
Corporation may have against Executive or anyone else, the completion of any
Change of Control or Divestiture or the employment of Executive by any
Divested Entity.  All amounts payable by the Corporation hereunder shall be
paid without notice or demand.  Each and every payment made hereunder by the
Corporation shall be final and the Corporation will not seek to recover all or
any part of such payment from Executive or from whoever may be entitled
thereto, for any reason whatsoever, excluding manifest error.  Executive shall
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor shall the amount of
any payment provided for in this Agreement be reduced by any compensation
earned by Executive as a result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owing by
Executive to the Corporation, or otherwise.

          C.   Successors.  This Agreement shall be binding upon and inure to
the benefit of Executive and Executive's estate, and the Corporation and any
successor of the Corporation, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by Executive.  In the event of a
Divestiture, the Corporation shall cause each Divested Entity to (i) execute
and deliver to Executive a written instrument, in form reasonably satisfactory
to Executive, whereby such Divested Entity shall assume, jointly and severally
with the Corporation, the obligations of the Corporation hereunder, provided
that no such assumption shall operate to release the Corporation from any
liability hereunder, and (ii)  deliver to Executive an executive stability
agreement between the Divested Entity and the Executive, substantially
identical to this Agreement, duly authorized by the Board of Directors or
other governing body of such Divested Entity and executed by a duly authorized
officer thereof, provided that no such executive stability agreement between
the Divested Entity and the Executive shall require the payment of a severance
payment or other benefits (a) in the event of a termination of employment
following a further Divestiture transaction involving the Divested Entity, or
(b) with respect to any termination of employment if Executive has previously
received a severance payment pursuant to this Agreement as a result of such
termination.

          D.   Severability.  Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.

          E.   Controlling Law and Interpretation.  This Agreement shall in
all respects be governed by, and construed in accordance with, the laws of the
State of Texas.  In the event that the interpretation or application of any
provision of this Agreement is determined in any proceeding to be ambiguous or
uncertain, the parties expressly intend and agree that such ambiguity or
uncertainty shall be resolved in favor of Executive. 

     IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.

                              /s/ Gregory C. King                
                              Gregory C. King

                              VALERO ENERGY CORPORATION

                              By:  /s/ E. C. Benninger           
                                Edward C. Benninger
                                President